These numbers are very huge, however, not all life insurance covers the number one fatality of depression: Suicide.

Drum spoke to Development actuary at Sanlam Individual Life, Karen Bongers and asked a few questions about how life insurance companies normally handle life insurance pay-outs when the cause of death is suicide.

Does every life insurance policy have a suicide clause?

As far as I know yes. I’ve never come across one without a suicide clause.

How does a typical suicide clause look?

It is in effect an exclusion clause, stating that a claim will not be paid if the life insured dies as a result of suicide within a certain period of time after the policy has been taken out. This period is typically two years.

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Does a suicide clause expire after a time, and is it ever reinstated? Why?

Once the two-year period referred to above has expired, the exclusion will no longer apply. If the policy is lapsed and reinstated, the suicide clause will typically apply again, as a lapse is a breach of contract and a reinstatement is effectively similar to taking out a new policy. If the cover on the policy is increased (other than through annual contractual cover growth increases), the suicide exclusion clause will typically apply to the increased portion from the date of the increase.

How does an insurance company prove a suicide?

Every case has to be decided on its own merits and circumstances.  All relevant available information will be considered and discussed with Legal Services and other stakeholders to reach a final decision if the cause of death is suicide or not.

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Are there many disputes arising from a suicide clause?

Very few.

Surely if an insured life is a smoker that qualifies as a suicide clause?

Smoking significantly increases someone’s risk, so life insurance companies charge a higher premium for those who smoke compared to those who don’t.

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How important is the possibility of suicide of an insured person to an actuary looking at risk?

Very important as life insurance companies can see in their claims experience that suicide is a major risk factor.

Suicide is usually a result of an illness: Depression, is this taken into account if the person was diagnosed before death?

Suicide clauses will generally exclude suicide irrespective of the cause.

To put this into perspective one needs to understand why the life insurance industry needs to apply these exclusions: to guard against anti-selective behaviour which, if not mitigated, will result in the entire product needing to be withdrawn from the market. (Consider for example the scenario where many policies are sold to clients who are pre-meditating suicide and are buying insurance solely for the purpose of getting an early claim pay out.

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Without the exclusion clause, they will only pay one or two monthly premiums but get a very large pay-out in return. Such a product will not be sustainable and will therefore need to be withdrawn from the market, also for clients who would have not claimed for suicide but for other causes.)